ABSTRACT
This study investigates the effect of financial literacy on investment decisions among retail investors in the stock market in Kaduna. Utilizing a structured questionnaire, data were collected from 148 participants to evaluate the impact of three dimensions of financial literacy—financial skills, financial awareness, and financial knowledge—on investment decisions. The analysis revealed that financial skills had the most significant effect on investment decisions, with 40.5% of respondents strongly agreeing that they understand how to calculate returns on investments and manage budgets. Financial awareness also had a notable impact, with 47.3% of participants strongly aware of the potential financial consequences of identity theft and the various investment options available. Financial knowledge was significant as well, with 50.7% of respondents strongly agreeing on understanding the importance of saving money for future goals. The regression analysis showed that financial skills had the highest coefficient (β = 0.45), indicating the strongest influence on investment decisions. Financial awareness followed with a coefficient of (β = 0.35), while financial knowledge had a coefficient of (β = 0.30). Hypothesis testing results indicated that financial skills significantly affect retail investors' decisions (p < 0.01), financial awareness significantly affects investment decisions (p < 0.05), and financial knowledge also has a significant effect (p < 0.05). The study concludes that enhancing financial literacy across all dimensions—skills, awareness, and knowledge—is crucial for improving investment decision-making. It is recommended that financial education programs be expanded to include practical skills, raise awareness about financial risks, and deepen financial knowledge to support better investment outcomes.
TABLE
OF CONTENT
CHAPTER ONE.. 4
INTRODUCTION.. 4
1.1 Background of
The Study. 4
1.2 Statement of The
Problem.. 8
1.3 Objectives Of
The Study. 11
1.4 Research
Question. 12
1.5 Hypothesis of
the Study. 12
1.6 SIGNIFICANCE OF
THE STUDY.. 12
1.7 SCOPE OF THE
STUDY.. 13
1.8 DEFINITION OF TERMS. 13
CHAPTER TWO.. 15
LITERATURE REVIEW... 15
2.1 Conceptual
Review.. 15
2.1.1 Concept of
Investment Decision. 15
2.1.2 Concept of
Financial Literacy. 16
2.1.2.1 Concept of Financial Awareness. 19
2.1.2.2 Concept
of Financial Skill 20
2.1.2.3 Concept
of Financial Knowledge. 21
2.2 EMPIRICAL
FRAMEWORK.. 27
2.2.1 Financial
Literacy On Investment Decisions. 27
2..2.2 Financial
Knowledge and Investment Decision. 36
2.2.3 Financial
Behavior and Investment Decision. 37
2.2.4 Financial
Awareness and Investment Decision. 39
2.2.4 Financial Skills
on Investment Decisions. 40
2.3 Theoretical
Framework. 41
2.3.1 Dual
Process Theory. 41
2.3.1 Theory of
Planned Behavior. 42
2.3.2 Social
Learning Theory. 43
2.2.4 Expected
Utility Theory. 43
2.4 Conceptual
Framework. 45
CHAPTER THREE.. 46
RESEARCH
METHODOLOGY.. 46
3.1 Research Design. 46
3.2 Target
Population. 46
3.4 Sampling
Technique and Sample Size. 47
3.5 Data Collection
Method. 48
3.3.1 Variable
Measurement 49
3.4 Method of Data
Analysis. 50
3.4.1 Regression Model
Specification. 50
3.5 Justification of
Methods. 51
CHAPTER FOUR.. 52
DATA ANALYSIS
AND INTERPRETATION OF RESULT.. 52
4.1 Introduction. 52
4.2 Analysis of
Demographic Information. 52
Table 1: Gender
Distribution of Respondents. 52
Table 2: Age
Distribution of Respondents. 54
Table 3: Marital
Status of Respondents. 55
4.3 Analysis of
Research Questions. 57
Table 3:
Responses on Financial Literacy. 57
Table 4:
Responses on Financial Knowledge. 60
Table 5:
Responses on Financial Skills. 62
Table 6:
Responses on Financial Awareness. 65
Table 7:
Responses on Investment Decision. 67
4.4 Test of
Hypotheses. 70
Hypotheses. 70
Multiple
Regression Analysis. 70
Analysis and
Interpretation. 71
4.5 Discussion
of Findings. 72
CHAPTER FIVE.. 74
SUMMARY, CONCLUSION
AND RECOMMENDATION.. 74
5.1 Summary. 74
5.2 Conclusion. 75
5.3
Recommendations. 77
5.4 Implications
for Future Research. 78
5.5 Limitations. 79
LIST
OF TABLES
Table 1: Gender Distribution of Respondents. 53
Table 2: Age
Distribution of Respondents. 54
Table 3: Marital
Status of Respondents. 56
Table 3:
Responses on Financial Literacy. 57
Table 4:
Responses on Financial Knowledge. 60
Table 5:
Responses on Financial Skills. 63
Table 6:
Responses on Financial Awareness. 65
Table 7:
Responses on Investment Decision. 67
Hypotheses. 70
Multiple
Regression Analysis. 70
Analysis and
Interpretation
CHAPTER ONE
INTRODUCTION
1.1 Background
of The Study
The world economy has become more complex and thus,
every individual needs to be active and smart in investment decisions in order
to manage the rising cost of living. Many individuals are interested in one
investment or the other, they view investments to be fascinating because they
make decisions and later see the outcomes of the decisions they make (Awais, et
al., 2021). So virtually everybody partakes in one form of investment or the
other, even those that do not partake in buying and selling of specific
financial assets such as stock, they still undertake investments through
participation in employee saving programme and pension plan or through purchase
of life insurance or by some other kinds of investments such as real estate
investment and through depositing of cash in fixed savings accounts of banks
(Fazal, 2017). However, not all investments lead to profit, as investors will
not always be right in their investment decisions (Oteng, 2019).Financial
literacy play a vital role in the global economy by providing knowledge,
awareness, and skills for the investors to efficiently deploy their wealth
(Gustiarum & Kusumawardhani, 2023). Within a dynamic and ever-changing
economic environment, investors encounter choices that possess the potential to
significantly influence not just their own financial well-being but also wider
financial system (Saputri, el al 2023). The investment choices are impacted by
a complex and interrelated set of variables, including the risk perception,
financial literacy, herding behavior, and financial behavior (Pratidina &
Anggraini, 2023). The business world is developing, growing and expanding
rapidly. In order to make revenues and
gains in the
future, investors or
shareholders must be knowledgeable on investment decision
so they can
evaluate the potential investment
and the most
profitable business to spend their money based on their capital and
returns, the time they will stick their money in long-term or
short-term, the risk
of investing in specific
sector, and the
opportunities they have. In developed countries, there is a
greater focus on educating an average family which involves helping it balanced
its budget, build assets, save for children's education and retirement planning.
Although financial education includes individuals of all ages, education of
young people in the area of finance is more significant the young age
encounters more financial risks and more complicated financial products than
their parents (Janor, et al., 2016). With all its importance, Fazal (2017),
stated that it is one of the disciplines that has not received much attention.
It was therefore not surprising that Owusu (2015) stated that the concept has
been given little attention in Nigeria and advocated for more studies in this
area.
In
Nigeria, financial literacy has over the years gained attention from a wide
range of stakeholders which include government agencies, banking institutions,
grass-roots consumer and community interest groups among other institutions. Interested groups, including policy
makers, are concerned about the lack of adequate knowledge of financial
concepts by citizens as they do not possess the necessary tools [financial knowledge, skills, and risk
tolerance,] that are needed to make sound investment decisions which will
enhance their economic well being and their participation in the capital market
most especially individual investors in Kaduna metropolis, as a result the federal government of Nigeria
developed A financial literacy
framework (FLF) in 2013 to provide a blueprint for implementing financial
literacy for the attainment of financial system stability and as a key
component for the implementation of the National Financial Inclusion Strategy.
The Government of Nigeria recognized the need for improving the levels of
financial inclusion and in 2012, launched the National Financial inclusion
Strategy, which aims to increase financial inclusion from 53.7 percent in 2010
to 80 percent in 2020. The Strategy sets as one of its goals client empowerments,
defined as 'an increase in the bankability of the population through the
increase of financial literacy and coordinated national financial literacy
initiatives that are complemented by consumer protection, National Financial Literacy
Framework (2015).
Besides, traders’ forms majority of business people
in the world hence their knowledge on financial literacy should be prioritized.
The situation is the same in the Kaduna Metropolis; it is important that these
retailers are educated in finance as early as possible since their investment
decision will lift the metropolis higher in development. Some years back in
Nigeria, Kaduna precisely, some investors lost their investment to some
microfinance organizations such as Miriam Moses microfinance, Cash flow finance
organization, Rich Harvest and the likes. Most of those victims were retailers
or individual investors. Proper financial knowledge on investment and other
financial related issues should have prevented those investors from being
victims of such financial scams. Another issue that arose was that of ‘money
doubler’ in Kaduna metropolis where people mostly traders lost a chunk of their
capital in false investment. Thus the need for investors to increase their
knowledge on financial issues; especially, in today’s financial markets.
According to Ajay and Sharma (2016), investment
awareness and financial literacy have always been a very significant approach
for informed financial decision-making process for every person. Besides, financial
decision making has been widely acknowledged as one of the important factors
that influence financial capability and financial wellbeing (Janor et al.,
2016). Thus, distinguishing factors that are positively correlated with
financial decisions is essential and is one of the central points for
individual and national advancement. The factors being examined in this
research are classified into following categories: This research explores the
association amid dependent variable, "investment decisions," and
three independent variables, "financial skills," financial awareness,"
risk tolerance". The present research takes into account the mediating
factor of "financial literacy" and moderating factor of "risk
perception." The notion of financial literacy involves broad spectrum of
decisions that people make about their investment budgets and plans, spending
patterns, and savings habits (Hildebrandus, et al, 2023).
With all its importance, Fazal (2017), stated that
it is one of the disciplines that has not received much attention. It was
therefore not surprising that Owusu (2015) stated that the concept has been
given little attention in Nigeria and advocated for more studies in this area. However,
behavioral factors have been playing vital role in investment decisions making.
For instance, the financial literacy and investment experience are supposed to
be the significant reasons having an effect on
risk tolerance and investment decisions
(Awais, et al.,
2016).
Nonetheless, several studies have associated between
the importance of the quality of decision making and the effectiveness of
financial literacy, Gaining an
inclusive understanding of the complexities linked with financial markets,
including inherent dangers and possibilities they provide, is necessary in
order to make intelligent investing choices (Almansour, et al, 2023).
According to data from the Nigerian Exchange Group
(NGX), retail investors took a step back from the stock market in February 2024,
which force a declined of Total transactions by 21.78% to N223.37 billion in
March 2024 from N285.58 billion in January 2024. However,
Investors
in the Nigeria stock market fortunes have been steadily declining since the
Nigerian Stock Market's all-time high performance of N13.5 trillion in March
2008, and the country's equity culture has been noted to be weak however there
is room for optimism, highlighted by the continued expansion of retail real
estate offering (Ogbebor, et al 2020). N173.32
billion was removed from the Nigerian stock market by foreign investors in
(2021) revealed by (punch 2021). Another report
by (This day 2022), revealed that Several
challenges have impeded the sector from fully leveraging the potential of its
large consumer market, such as inflation, volatility in the exchange rate and a
vulnerability to external price fluctuations.
According to a report of Nigeria Exchange Ltd (NGX)
in 2024, the Nigerian stock market continued its decline as investor sentiment
drove sales in banking, consumer goods, and industrial sectors, it also witnessed
a decrease in market capitalisation by N49 billion or 0.09%, closing at N56.126
trillion from an opening of N56.175 trillion (Bismarck Rewane 2024). The
All-Share Index also fell by 0.09% or 87 points to end at 99,217.60, down from
Monday’s 99,304.12, bringing the Year-To-Date (YTD) change to 32.69% lower (Bismarck
Rewane 2024). Stocks like Zenith Bank, United Bank of Africa (UBA), Access
Corporation, Dangote Sugar, Honeywell Flour, and Nigerian Breweries experienced
significant sell-offs, contributing to the market’s downturn.
Nevertheless, the market's breadth was positive, with 27 gains and 23
losses. Gainers included Okomu Oil, which increased by 10% to N291.50 per
share, John Holt, which increased by 9.79% to N3.14, and Consolidated Hallmark
Holdings, which increased by 9.43% to N1.74. On the other hand, UPL dropped
9.09% to N2.50, while Oando saw the worst dip among losers, plunging 9.75% to
N12.50. (Yusuff, 2016) But compared to the previous section 16 June (2024) trading
activity dropped by 68.09%, with 8,511 transactions involving the exchange of
361.57 million shares for N6.16 billion.
With 47.51 million shares traded, Transnational Corporation led in
volume, and with 37.85 million shares valued at N1.65 billion, GTCO led in
value (vanguard 2024). Institutional investors beat ordinary
investments by 2%, according to Guardian Business 2024. When domestic
transactions in April and May 2024 were compared to the current month, they
showed that retail transactions had climbed from N100.77 billion to N113.53
billion, a 12.66% increase.
Furthermore, in December 2021, it was reported that
investors lost N553 billion in four days, with two losses recorded for every
three transactions (This Day news, 2021). The Nigerian Exchange Limited's most
recent statistics indicates that in the first three months of this year, both
domestic and foreign investors withdrew a total of N339.06 billion from the
country's stock market. According to the report, local investors withdrew
N248.94 billion from the Nigerian stock market in the first quarter, while
international portfolio investors sold assets worth N90.12 billion. However, The institutional composition of the domestic
market decreased by 5.66% from N124.63 billion in April to N117.57 billion in
May 2024, Although the stock market closed the year 2023 with positive. But
Over a 16 year period, domestic transactions decreased by 10.95% from N3.556
trillion in 2007 to N3.167 trillion in 2023; while foreign transactions also
decreased by 33.28% from N616 billion to N411 billion over the year [Helen Oji,
26 June 2024].
This negative performance of the Nigerian stock market made it one of
the worst performing markets across the globe, this poor performance of the
Nigeria stock market may not only be linked to the macroeconomic factors but
also to the financial knowledge and skills of the investors in the capital market. The
increased complexity and volatility of financial markets need a thorough
analysis of the many elements that influence investor decision-making. Purpose
of study is to analyze the variables (
financial literacy, financial awareness, financial knowledge and financial
skills) in order to provide investors thorough understanding of decision-making
process. However the available data suggests a notable underperformance in
retail investors in Kaduna, which may be attributed to several factors,
including ineffective financial literacy practices because effective financial
literacy practices are known to significantly enhance investor decision toward
investment activities, Hence, this study seeks to delve into the Effect of
financial literacy on investment decision among retail investors in Kaduna
metropolis. Successively, (Nairametrics, 2020) report that The
Nigerian Stock Exchange (“NSE” or “The Exchange”) has expressed its commitment
to redefining and improving investors’ overall experience in the Nigerian
capital market, and ensuring that it remains modern, convenient and secure. Specifically, it aims to analyze how financial
Awareness, financial skill and financial Knowledge collectively influence
investment decision among retail investor in Kaduna metropolis.
In the same vein, prior studies
such as Cao, Nguyen & Tran, 2021; Davis and
Emerenini 2015; Edeh, 2020; Quddoos, Rafique, Kalim & Sheikh, 2020, Ghalandari
& Ghahremanpour, 2013; Hamidon & Kehelwalatenna, 2020; Haritha, 2020;
Ibrahim & Umar, 2017; Mahmood et
al., 2020; Nsonwu and David, 2021; Rajeshwaran,
2020, sulistyowati: 2021 among others, have financial literacy
in various contexts. However, none of these
prior studies have specifically examined the combined effect of financial
Awareness, financial skill and financial Knowledge on investment decision among retail investor in Capital Market. This study aims to fill these gaps
by investigating how Financial literacy
influence investment decision, focusing
on retail investor, Kaduna.
1.3 Objectives
Of The Study
The main objective of this study is to examine the
effect of financial literacy on investment decision among retail investors in
capital markets in Kaduna metropolis.
The specific objectives of the study are as follows:
1. To
examine the effect of financial awareness on investment decisions among retail
investors in capital markets in Kaduna metropolis.
2. To
establish the impact of financial skills on investment decisions among retail
investors in capital markets in Kaduna metropolis.
3. To
establish the effect of financial knowledge on investment decisions among
retail investors in capital markets in Kaduna metropolis.
1.4 Research
Question
The research questions, which would guide the study,
are as follows:
1. Does
financial awareness affect investment decision among retail investors in
capital market in Kaduna metropolis?
2. What
is the impact of financial skills on investment decision among retail investors
in capital market in Kaduna metropolis?
3. What
is the effect of financial knowledge on investment decision among retail
investors in capital markets in Kaduna metropolis?
1.5 Hypothesis
of the Study
In order to pursue the objectives of the study which
is focused on mediating effect of retail investors’ decision on financial
literacy and investment decisions in Nigerian capital market, the following hypotheses has been
formulated and will be tested:
Ø H01:
financial skills do not significantly affect retail investor’s decision.
Ø H02:
financial awareness do not significantly affect retail investors’ decision.
Ø H03:
financial knowledge does not have significantly effect on individual investment
decision
1.6 SIGNIFICANCE
OF THE STUDY
The quality of research work lies on the relevance
to the society being studied. The importance is the ability to know the
significant effect of financial literacy on investment decision among retail
investors in capital markets in Kaduna metropolis.
Again, this research will be of immense value to the
different sectors of the capital markets (both public and private retail
investors) most especially individuals. The study would be of immense help to
the government, monetary authority, individuals, economists, students,
planners, financial analysts, stock brokers and other investors who might be
interested in researching into the field in the future, by shedding more light
into the widely held view about the effect of financial literacy on investment
decision
1.7 SCOPE
OF THE STUDY
The scope of this study will be majorly on
individual investors. In addition,
today’s world has changed to a rather sophisticated financial products calling
for a certain level of financial literacy for better investment since losing
direction can only be helped by possessing prerequisite knowledge. This work
will not cover the corporate bodies but will look at the financial literacy as
being used by individual investors for the stabilization and avoidance of
inadequate investment decisions. In the view of the issues raised above, the
study therefore, sought to examine the effect of financial literacy on
investment decisions among retail investors in capital market in Kaduna
metropolis.
1.8 DEFINITION OF TERMS
Financial
Literacy: Financial literacy refers to the extent to which an
individual possesses the understanding of key financial concepts, the
confidence and ability to make appropriate short term and long term investment
decisions, while considering the changing economic conditions (Nye, Pete &
Cinnamon, 2013).
Investment: Investment
is the activity involved by people looking for positive rate of return, whom
possess some savings in order to impose them in capital assets or goods and
services (Bhalla, 1982).
Decision Making: Decision-making can be defined as the process of
selecting a right and effective course of action from two or more alternatives
for the purpose of achieving a desired result. Decision-making is the essence
of management. According to (P. F. Drucker, “Whatever a manager does he does through making decisions.” All
matters relating to planning, organising, direction, co-ordination and control
are settled by the managers through decisions which are executed into practice
by the operators of the enterprise. Objectives, goals, strategies, policies
and organisational designs are all to be decided upon in order to regulate the
performance of the business.
Retail: Retail is the sale of goods
and services to consumers, in contrast to wholesaling, which is sale to
business or institutional customers. A retailer purchases goods in large
quantities from manufacturers, directly or through a wholesaler, and then sells
in smaller quantities to consumers for a profit (Wikipedia).
Investor:
An
investor is a person or organization that provides capital with the expectation
of earning a return on their investment. Investors assume the
risk that a venture may fail and are compensated in the form of a return
if they are successful (Brian Baker, 2023)
Capital
Market: A capital
market is a financial market in which long-term debt or equity-backed
securities are bought and sold, in contrast to a money market where short-term
debt is bought and sold (Wikipedia).
Financial
Knowledge: define financial knowledge
to mean the understanding of significant financial concepts such as inflations,
interest rate computation and diversification of risk in portfolio (Gina, Akoto
and Despard (2012).
Financial
Skills: Ability to prepare budget and
acquisition of borrowing and saving knowledge (Amos, 2014).
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